Electricity said to be too costly

Sam KennedyOf The Morning Call

Pennsylvania residents will be overcharged by $5 billion over the next few years because of a flaw in the deregulated electricity market, state officials have alleged in a complaint to federal regulators.

The 211-page complaint, filed last week by a multi-state coalition that includes the Pennsylvania Public Utility Commission, alleges that electric companies are pocketing money that was supposed to pay for the construction of new power plants.

The coalition, which also includes consumer advocates in Pennsylvania, Maryland, New Jersey and Delaware, is asking the Federal Energy Regulatory Commission to order the refund of excess payments that it calculates at $12 billion for customers throughout PJM Interconnection, the grid operator for 13 states and the District of Columbia.

The "model has not worked as intended," the PUC said in a statement Tuesday. "It has resulted in unjust and unreasonable rates."

Specifically, the complaint is against PJM, which in addition to running the grid operates the wholesale energy market. In 2005, PJM determined that the region faced an energy shortfall because electricity prices were too low to spur electric companies to build new plants.

PJM decided at that time to establish something called the "reliability pricing model" which, by guaranteeing higher electricity prices through so-called capacity auctions, was supposed to give electric companies the incentive to build new plants or expand the output of existing ones.

The capacity auctions at issue cover contracts for electricity from June 2008 to May 2011.

"If these unreasonable results stand, customers will pay significantly higher capacity charges than justified, but with little discernible benefit, while existing generators will receive an unwarranted windfall," the complaint reads.

How much will go to individual Pennsylvania electric companies has yet to be determined, according to a PUC spokeswoman.

The complaint would not appear to apply to the electricity rates customers of PPL Electric Utilities are now paying, because they are capped through 2009. However, the auctions could have influenced the price of the electricity the company has purchased on behalf of its customers for 2010.

That's when, in the final step in PPL's gradual transition to deregulated electricity, rates are expected to surge 34 percent for residents and up to 43 percent for some businesses.

"To the extent that suppliers were factoring in capacity charges, it's in [the 2010 price]. But it's not in there as a line item," said Dan McCarthy, spokesman for PPL Corp., the Allentown parent of PPL Electric Utilities. "It's not something that would be easily discernible."

Ray Dotter, a PJM spokesman, took issue with claims that the capacity market has failed, saying there is clear evidence that power suppliers are investing in additional generation as a direct result of the higher payments.

Taking those payments back now would create chaos in the market, he contends. Even the mere existence of the complaint could discourage power company executives from investing in new plants, according to representatives of the electric industry.

Coalition members said they have heard that argument before. "We can't be held hostage to what we think are inefficient markets," said Steven Larsen, chairman of the Maryland Public Service Commission, which took the lead in drafting the complaint.

Dotter said PJM is open to making changes in the system for future auctions, so long as the results of previous auctions are left intact. PJM has commissioned a study to review the auction results, and FERC has said previously that it is willing to wait for that process to play out before considering changes, Dotter said.

FERC officials declined to comment on the complaint. Industry officials, though, say FERC is typically reluctant to second-guess the market.

POWER MARKET UNFAIR?

What happened? A coalition has filed a federal complaint against grid operator PJM Interconnection.

Why? The group says certain power market rules are unfair and cost consumers in 13 states $12 billion in excess payments. The group wants federal regulators to order refunds, including $5 billion for Pennsylvania consumers.

What's PJM? It operates the power grid and wholesale energy market for all or parts of Maryland, Delaware, Illinois, Indiana, Kentucky, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. Its territory has 51 million residents.